Definition of Income for Certain Medicaid Provisions and Premium Credits in ACA

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Janemarie Mulvey, Coordinator
Specialist in Health Care Financing

Evelyne P. Baumrucker
Analyst in Health Care Financing

Bernadette Fernandez
Specialist in Health Care Financing

Christine Scott
Specialist in Social Policy

Underthe Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended),the definition of income for eligibility for certain Medicaid populationsand premium credits in the exchanges is based on modified adjusted grossincome (MAGI). The initial intent of using MAGI was to standardize thedefinition of income for Medicaid eligibility purposes to reduce some of thevariability and complexity that exists under the current program and to provideconsistency between Medicaid and the health insurance exchange.

The use of MAGI, however, raised some concerns among Congress and the Obama Administration,as the definition in ACA excluded some types of income either partially or altogether.Of particular interest was the potential impact on eligibility for Medicaid andpremium credits for early retirees (aged 62 through 64) receiving SocialSecurity benefits, as some or all of their Social Security income may havebeen excluded from the MAGI definition of income. By excluding some typesof income from the ACA definition, individuals and families with a higher percentageof total income relative to the federal poverty level may qualify for Medicaidand premium credits.

To address these concerns, P.L. 112-56 was enacted into law on November 21,2011, which among other things, amended the definition of income for theseprograms and included nontaxable Social Security in the definition ofMAGI. The new law, however, does not address other forms of non-taxableincome that are not currently in the MAGI definition (e.g., retirement plan contributions,gifts and inheritance). In evaluating the definition of MAGI, a number ofissues might be considered. First, an alternative definition may addcomplexity compared with the use of MAGI. Specifically, because adjustedgross income (on which MAGI is based) can be computed largely frominformation on an individual’s federal tax return, verification of income is streamlined.If an alternative definition is used that is not based on tax returninformation, the administrative complexity of verifying nontaxable incomefrom different sources comes into play. Second, the definition wasdeveloped to ensure coordination between Medicaid and premium credits inthe health insurance exchange. A change in the definition of income forMedicaid also would be necessary for premium credits to ensure consistencybetween Medicaid and the premium credit offered to selected individualswho purchase private health insurance through the exchanges. Finally, theenactment of P.L. 112-56 focused largely on the inclusion of Social Securitybenefits in income definitions for eligibility purposes. However, most otherlow-income programs include other types of income (e.g., nontaxablepensions) and asset holdings that are also excluded from MAGI.


Date of Report: February 5, 2013
Number of Pages: 20
Order Number: R41997
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